Abstract
This thesis consists of three papers that analyse the interaction between labour market dynamics and the macroeconomy. Each study stresses the importance of shocks originating from the labour market and applies state of art macroeconomic tools namely the dynamic stochastic general equilibrium (DSGE) and or the structural vector autoregressive (SVAR) models estimated using Bayesian methods.
The first paper analyses the macroeconomic effects of demand, supply, and labour market shocks on labour market dynamics and the macroeconomy. The analysis is carried out in a DSGE model that features search and matching frictions in the labour market and wage rigidities. As an application, the model is estimated on Italy’s data using Bayesian techniques. Results show that shocks that originate from the labour market are among the largest contributors to labour market dynamics and economic fluctuations.
The second paper looks at the relevance of labour supply and labour demand factors on macroeconomic dynamics. The analysis is conducted within the context of a large structural vector autoregressive model (SVAR) using sign restriction identification. The model is applied to Italy’s data using Bayesian techniques. Results confirm the predominant role of labour market shocks as sources of labour market fluctuations and economic volatility.
The final paper examines the macroeconomic impact of an exogenous net migration shock on labour market dynamics and the macroeconomy for the case of a small open economy. The analysis is accomplished within the context of a small open economy DSGE model and a SVAR model estimated on New Zealand data using Bayesian methods. Results show that a net migration shock is a critical driver of labour market fluctuations but it plays a minor role for business cycle fluctuations.